At the beginning of 2017, Brett Company decided to change from the FIFO to the average cost inventory cost flow assumption for financial reporting purposes. The following data are available in regard to its pretax operating income and cost of goods sold:

The income tax rate is 30%, and the company received permission from the IRS to also make the change for income tax purposes. Brett has a simple capital structure, with 100,000 shares of common stock outstanding. Brett computed its reported income before income taxes in 2017 using the newly adopted inventory cost flow method. Brett€™s 2016 and 2017 revenues were $1,500,000 and $1,750,000, respectively. Its retained earnings balances at the beginning of 2016 and 2017 (unadjusted) were $1,120,000 and $1,540,000, respectively. Brett paid no dividends in any year.
Required:
1. Prepare the journal entry at the beginning of 2017 to reflect the change.
2. At the end of 2017, prepare comparative income statements for 2017 and 2016. Notes to the financial statements are not necessary.
3. At the end of 2017, prepare comparative retained earnings statements for 2017 and 2016.

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Reported Income Before Income Taxes Excess of Average Cost of Goods Sold Over FIFO Cost of Goods Sold Adjusted Income Before Income Taxes Year Prior to 2016 $,600,000 2016 2017 $130,000 $1470,000 600,000 700,000 50,000 550,000